Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

Nearly Rs 1 Lakh Crore In Loans Still At Immediate Risk Of Going Bad, Shows RBI Data

Nearly Rs 1 lakh crore in loans were overdue by more than 60 days, and were classified as so-called ‘Special Mention Accounts-2 (SMA-2) by banks, at the start of the current financial year, shows data from the Reserve Bank of India (RBI) accessed by BloombergQuint under the Right To Information (RTI) Act.

This pool of loans represents debt that would be considered at high risk of slipping into the bad loan category and adding to the gross non performing assets (NPAs) of more than Rs 8 lakh crore sitting on the balancesheets of Indian banks. While the quantum of SMA-2 accounts has come down over the 12-month period up until March 2017, the reduction has been more due to slippage of these loans into the NPA category, rather than a recovery in these accounts.

According to data provided by the RBI, loans under the SMA-2 category stood at Rs 97,102 crore, as on March 31, 2017, as compared with Rs 1.29 lakh crore a year ago. The number stood at Rs 1.13 lakh crore as on March 31, 2015.

Between March 2015 and March 2017, gross bad loans of banks more than doubled from Rs 3.22 lakh crore to over Rs 7.7 lakh crore. As of the end of the June 2017 quarter, gross NPAs of listed banks stood at Rs 8.3 lakh crore.

Nearly Rs 1 Lakh Crore In Loans Still At Immediate Risk Of Going Bad, Shows RBI Data

The RBI had introduced the SMA categories as part of its framework for resolution of stressed assets released in January 2014. The regulator had stated that this would help banks deal with stressed assets even before they turned NPA. Accounts which have delayed repayment up to 30 days are categorised as SMA-0; those which have delayed repayment between 30-60 days are put under SMA-1; and accounts where repayment has been delayed for more than 60 days are classified under SMA-2. As per RBI’s asset classification norms if a borrower delays payment for more than 90 days after the due date, the account is classified as an NPA.

According to a senior official at a large state-owned bank, while lenders have been seeing some upgrades from SMA cases, the pace has been very slow. Unless recoveries and upgrades pick up pace and match resolution, banks cannot hope to see much improvement, the banker said.

Large lenders like State Bank of India (SBI), ICICI Bank and Axis Bank have all created a list of stressed accounts which are most at risk of turning bad. These watch-lists, created at the start of fiscal 2017, have since reduced in quantum but only because many of these accounts have turned bad.

In March 2016, SBI had reported a watch list of Rs 34,776 crore, which came down to Rs 13,310 crore in March 2017. Following SBI’s merger with five associate banks and Bharatiya Mahila Bank in April 2017, the watch list had risen back to Rs 34,427 crore. As of the end of the June quarter, the list had reduced to Rs 24,444 crore.

ICICI Bank’s ‘drill-down list’, which was at over Rs 44,000 crore in March 2016, came down to a little over Rs 20,000 crore in June 2017. Axis Bank saw its watch list move from Rs 22,628 crore in March 2016 to Rs 9,436 crore in March 2017 and Rs 7,941 crore in June 2017.

Banks are now attempting to use the Insolvency and Bankruptcy Code to resolve a number of large and mid-sized cases. Over the last six months, since the notification of the Bankruptcy Code, the number of cases referred to the National Company Law Tribunal (NCLT), has reached 2,050 as of 30 June 2017, said Credit Suisse in a report dated August 17.

We are hopeful that once these assets (SMA-2) have slipped, they will be upgraded because we are using the NCLT adequately. The expectation is that in some of these cases, promoters will come and discuss a settlement option, since their powers may be suspended.
AK Goel, Executive Director, Union Bank of India

According to Karthik Srinivasan, senior vice president at ICRA Ltd, with the RBI listing accounts for immediate insolvency action and banks being given only six additional months to resolve some of the other large accounts, the success of the NCLT route would be crucial in determining the pace of resolution of stressed assets in the banking sector.